Industrial titan General Electric Co. (NYSE:GE) announced on Tuesday plans to acquire two industrial metal 3D printing companies, Sweden-based Arcam AB (NASDAQOTH:AMAVF) and Germany-based SLM Solutions Group AG, for a total of $1.4 billion.
If the combined deal is approved, it will be by far the largest deal ever in the burgeoning 3D printing realm, and will mark GE's move beyond being just the world's largest user of metal 3D printing technologies to also becoming a leading supplier of them.
The proposed deals
GE made cash offers to acquire all of the outstanding shares of Arcam and SLM. The offer for Arcam is for nearly 5.86 billion Swedish krona, or about $685 million. This bid includes an offer of 285 krona, or about $33, for each American depositary share (ADS). (Investors who took my advice are in the big money. I called Arcam the best 3D printing stock a year ago when the ADS was trading at just over $13 per share, and reiterated this call earlier this year.)
Both offers should be embraced by shareholders, as they each represent a significant premium to the value at which each stock was trading before the bids. In Arcam's case, the premium is 53% for shares trading on the Stockholm exchange.
Arcam makes metal 3D printers powered by its proprietary electron beam melting (EBM) technology for the aerospace and orthopedic implant industries. It also has two subsidiaries: AP&C, a metal powders production operation located in Canada, and DiSanto Technology, a contract manufacturer of orthopedic implants that's based in Connecticut. Arcam generated $68 million in revenue in 2015.
SLM Solutions, which trades on the Frankfurt exchange, produces metal 3D printers based on its proprietary selective laser melting (SLM) technology and sells them to a wide range of industrial markets. It posted $74 million in revenue in 2015.
General Electric is a customer of both companies.
The closing of each offer is subject to approval by shareholders and regulators.
What this move means for General Electric
The significance of GE's move can't be overstated. If the deals get the green light, GE will move beyond being "just" the world's largest user of metal 3D printing technologies to also becoming a significant 3D printing supplier. As CEO Jeff Immelt remarked:
Additive manufacturing is a key part of GE's evolution into a digital industrial company. We are creating a more productive world with our innovative world-class machines, materials and software. We are poised to not only benefit from this movement as a customer, but spearhead it as a leading supplier.
GE said in the press release that it expects to grow its new 3D printing business to $1 billion in revenue by 2020, while generating attractive returns, and also expects $3 billion to $5 billion of product cost savings across the company over the next 10 years.
Arcam and SLM generated $142 million in combined revenue in 2015, so GE's $1 billion revenue goal by 2020 represents growth of about 600% in five years. A 40+% compounded annual growth rate (CAGR) is ambitious but very doable. The 3D printing industry is projected to grow at a brisk pace, and the metal 3D printing has been growing faster than the industry as a whole. For perspective, 3D Systems and Stratasys posted $645.6 million and $680.9 million, respectively, in revenue over the trailing 12 months.
General Electric currently has more than 300 3D printers across its empire and has a goal of producing a total of 100,000 3D-printed parts in its aviation business alone by 2020, according to its website.
The company has enthusiastically embraced the use of 3D printing because the technology enables it to more quickly and efficiently bring to market products that contain components that can't be made by conventional manufacturing techniques. A key benefit of using 3D printing in aerospace applications is that it enables some components to be designed in such a way as to make them considerably lighter than is possible using traditional manufacturing techniques. Even small reductions in weight lead to huge savings in aircraft fuel costs.
The industrial behemoth's big push into 3D printing started when it bought Morris Technologies in 2012. This acquisition gave it a full-scale 3D production facility near its aviation division's Ohio headquarters. In 2013, GE announced plans to use 3D printing to produce the fuel nozzles for its new Leap jet engine, each of which will contain 19 nozzles. Then in 2014, GE announced that it planned to start using 3D printing technology in its power and water business, its largest industrial division.
What GE's move means for 3D Systems and Stratasys
General Electric's entree into the 3D printing supplier business will almost surely have ramifications for the industry's two largest diversified players, 3D Systems and Stratasys. 3D Systems makes metal 3D printers that use laser sintering technology, though its metal business is a small portion of its overall business. Stratasys doesn't make 3D printers that can print in metals; however, along with 3D Systems, it has metal capabilities in its 3D printing services operation.
GE's move appears to be a double-edged sword for 3D Systems and Stratasys. Positively, the fact that the industrial giant is entering the supplier space is a significant endorsement of 3D printing as both a technology and a business. GE's move should increase the size of the entire metal 3D printing market.
The flip side, however, is that now 3D Systems and, to some degree, Stratasys will be competing with another goliath. They're already newly competing with 2D-printing king HP Inc., along with well-funded start-up Carbon, in their core polymer 3D printing businesses. HP and Carbon launched in May and April, respectively, 3D printers for the enterprise market that are reportedly faster than the 3D printers sold by 3D Systems and Stratasys.
For General Electric investors, the company's push into the 3D printing supplier space is a positive. It will allow GE to advance its internal use of 3D printing, and also to profit along with the growth of 3D printing technology in general.
For investors in 3D Systems, Stratasys, and other 3D printing players, GE's entrance into the metal 3D printing supply business is a mixed bag. The total market size should expand, but existing players will now be facing an extremely deep-pocketed competitor.
Beth McKenna has no position in any stocks mentioned. The Motley Fool owns shares of General Electric. The Motley Fool recommends 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.